What evidence in the income statement confirms that Accrual accounting is in use?

The presence of accrued expenses in the income statement indicates that accrual accounting is in use. Accrual accounting recognizes financial transactions when they occur, regardless of when cash is actually received or paid. This means that expenses are recorded when they are incurred, not necessarily when they are paid.

Accrued expenses refer to costs that have been incurred in the accounting period but have not yet been paid by the end of that period. This aligns with the principle of matching expenses to the revenues they help generate, providing a more accurate picture of a company’s financial performance.

Other items like revenue from sales and prepaid expenses do not necessarily provide direct evidence of accrual accounting. Revenue from sales could be recognized under either cash or accrual accounting depending on the timing of the transactions. Prepaid expenses are typically associated with cash accounting since they involve payments made in advance for goods or services to be received in future periods. Dividend payments relate to distributions of profits and do not reflect the operating performance that accrual accounting focuses on capturing.